2025 (7) TMI 107 - AT - Income Tax

Deduction u/s. 80IB - Validity of Approval given by Competent Authorities under RERA and AUDA - denial of deduction as carpet area of the residential units exceeded the prescribed limit of 60 square meters as per the definition u/s 80-IBA - CIT(A) allowed deduction - HELD THAT - CIT(A) has decided the appeal after verification of the records Sale deeds and floor plan submitted by the assessee. AO before making disallowance u/s. 80IBA ought to have referred the matter to the District Valuation Officer to verify the measurements of the residential flats which was not done by the A.O. But simply relying on the broachers supplied by the assessee firm denied the benefit to the assessee. That apart the Revenue could not place on record any material that the floor area is exceeding 60 Square Mtrs. Whereas the Local Authority issued Building Use (BU) Certificate which also fulfill the definition of Section 2 (k) of the RERA Act which are lesser than 60 Sq. Mtrs. as prescribed u/s. 80IBA of the Act. In the absence of any material evidence or DVO s report from the Revenue we have no hesitation in confirming the order passed by Ld. CIT(A) - Appeal filed by the Revenue is hereby dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal was whether the Commissioner of Income Tax (Appeals) was justified in allowing the deduction claimed under section 80-IBA of the Income Tax Act, 1961, by the assessee for the Assessment Year 2020-21, despite the Assessing Officer's disallowance on the ground that the carpet area of the residential units exceeded the prescribed limit of 60 square meters as per the definition under section 80-IBA read with the Real Estate (Regulation and Development) Act, 2016 (RERA Act).

Specifically, the issues were:

• Whether the carpet area of the residential units in the housing project "Karnavati Riviera" complied with the statutory definition under section 80-IBA(6)(a) and the RERA Act, 2016, and was within the prescribed limit of 60 square meters.
• Whether the Assessing Officer's reliance on the floor plan brochure available on an intermediary website, which was for marketing purposes, was appropriate for disallowing the deduction.
• Whether the Assessing Officer erred in not verifying the carpet area measurements through the competent authority or District Valuation Officer (DVO).
• Whether the approval and Building Use (BU) permission granted by the competent local authority (Ahmedabad Municipal Corporation/AUDA) and registration under RERA sufficed to establish eligibility for deduction under section 80-IBA.
• Whether judicial precedents supported the assessee's claim for deduction on the basis of approved plans and occupancy certificates.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Definition and Measurement of Carpet Area under Section 80-IBA and RERA Act

Legal Framework and Precedents: Section 80-IBA(6)(a) of the Income Tax Act defines "carpet area" by adopting the same meaning as assigned in clause (k) of section 2 of the RERA Act, 2016. Clause (k) excludes certain areas such as verandahs and exclusive open areas from the carpet area. The "competent authority" for approval is defined under section 80-IBA(6)(b) as the authority empowered to approve building plans under any law.

Judicial precedents relied upon included the Supreme Court decision in Principal Commissioner of Income-tax vs. Vardhan Builders (2023), which held that deduction under section 80-IB(10) could not be denied where the claim was based on approved plans, occupancy certificates, and possession letters, and where no evidence indicated violation of approved plans.

Court's Interpretation and Reasoning: The Tribunal noted that the carpet area as per the approved plan by the competent local authority (AUDA) and as per the certificate of a registered engineer was 59.49 square meters, which is below the statutory limit of 60 square meters. The brochure relied upon by the Assessing Officer was for marketing purposes and did not conform to the statutory definition of carpet area under the RERA Act.

The Tribunal observed that the Assessing Officer's calculation excluded internal partition walls, which are included in the statutory definition, thus underestimating the carpet area. However, even considering the internal walls, the carpet area remained within the prescribed limit.

Key Evidence and Findings: The assessee produced the approved building plan, BU permission, engineer's certificate, and sale deeds evidencing the carpet area measurement and compliance with RERA regulations. The local authority's approval and registration under RERA were undisputed.

Application of Law to Facts: The Tribunal applied the statutory definitions and found that the carpet area was correctly measured and verified by the competent authority, fulfilling the conditions of section 80-IBA. The assessee's claim was consistent with the approved plans and statutory requirements.

Treatment of Competing Arguments: The Assessing Officer's reliance on the floor plan brochure from an intermediary website was rejected as it was not a reliable or statutory document. The Tribunal also criticized the Assessing Officer for not seeking verification from the District Valuation Officer or the competent authority before disallowing the deduction.

Conclusion: The carpet area complied with the statutory definition and was within the prescribed limit, entitling the assessee to claim deduction under section 80-IBA.

Issue 2: Validity of Disallowance of Deduction by Assessing Officer Without Proper Verification

Legal Framework and Precedents: The Assessing Officer is required to verify facts and documents before denying deductions under the Act. Reliance on unverified marketing brochures is insufficient. The Supreme Court's decision in Vardhan Builders emphasized the importance of approved plans and occupancy certificates as valid evidence.

Court's Interpretation and Reasoning: The Tribunal held that the Assessing Officer erred in disallowing the deduction without referring the matter to the District Valuation Officer or the competent authority for verification of carpet area measurements. The Assessing Officer's reliance on the brochure was misplaced.

Key Evidence and Findings: The absence of any DVO report or contrary material from the Revenue was noted. The local authority's BU permission and RERA registration were sufficient evidence.

Application of Law to Facts: The Assessing Officer failed to discharge the burden of proof to demonstrate that the carpet area exceeded the statutory limit. The Tribunal found no justification for the disallowance.

Treatment of Competing Arguments: The Revenue did not produce any material or document to substantiate the claim that the carpet area exceeded 60 square meters. The assessee's evidence was comprehensive and credible.

Conclusion: The disallowance of deduction without proper verification was unjustified and was rightly set aside by the Commissioner of Income Tax (Appeals).

Issue 3: Applicability of Judicial Precedents and Reliance on Approved Plans and Occupancy Certificates

Legal Framework and Precedents: The Supreme Court's ruling in Principal Commissioner of Income-tax vs. Vardhan Builders established that deduction under section 80-IB(10) cannot be denied when the claim is supported by approved plans, occupancy certificates, and possession letters, absent evidence of violation of approved plans.

Court's Interpretation and Reasoning: The Tribunal found the precedent squarely applicable, noting that the assessee had submitted approved plans, BU permissions, and sale deeds, which were consistent with the statutory requirements and supported the claim for deduction.

Key Evidence and Findings: The assessee's submission of sale deeds, approved plans, and engineer's certificate was accepted as sufficient evidence.

Application of Law to Facts: The Tribunal applied the precedent to uphold the assessee's entitlement to deduction.

Treatment of Competing Arguments: The Revenue's failure to produce contrary evidence or challenge the authenticity of the approved plans and certificates was noted.

Conclusion: The judicial precedent supported the assessee's claim, reinforcing the correctness of the appellate order.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"The carpet area of the residential unit in the housing project of the appellant firm is 59.49 Sq. Mtr which is well within the prescribed limit as per the conditions provided in the section 80-IBA. Carpet area has also been verified by the local authority while giving BU Permission as per the documents uploaded by the appellant during the course of assessment proceedings as well as appellate proceedings."

"The Assessing Officer before making disallowance u/s. 80IBA ought to have referred the matter to the District Valuation Officer to verify the measurements of the residential flats which was not done by the A.O. But simply relying on the brochures supplied by the assessee firm denied the benefit to the assessee."

"In the absence of any material evidence or DVO's report from the Revenue, we have no hesitation in confirming the order passed by Ld. CIT(A) and therefore the ground raised by the Revenue is devoid of merits and liable to be dismissed."

Core principles established include:

• The definition of carpet area for the purpose of section 80-IBA must conform to the definition in the RERA Act, 2016, and the measurement must be as per approved plans by the competent authority.
• Deduction under section 80-IBA cannot be denied merely on the basis of marketing brochures or unverified documents.
• The Assessing Officer must verify facts through appropriate authorities such as the District Valuation Officer before disallowing deductions.
• Judicial precedents affirm the entitlement to deduction where claims are supported by approved plans, occupancy certificates, and possession letters, absent evidence of non-compliance.

Final determination was that the assessee was entitled to the deduction claimed under section 80-IBA for the Assessment Year 2020-21, and the addition of Rs. 5,15,64,217/- made by the Assessing Officer was rightly deleted by the Commissioner of Income Tax (Appeals). The Revenue's appeal was dismissed accordingly.